June 29, 1998
The 'Live Free or Die' State in a Tough Spot on Taxes
By CAREY GOLDBERG
CONCORD, N.H. -- If a callous carnival barker were to stand outside
the noble old New Hampshire State House these days, he could
legitimately cry:
Come see an entire political establishment squirm! Come see the
Granite State caught between a court-decreed rock and a political
hard place! Come see the most tax-hating, local-controlling,
Living-Free-or-Dying state in the nation face the heaviest pressure
anyone can remember to change its tax system!
New Hampshire is in a fix. Last December, its Supreme Court ruled
that it could no longer fund its schools almost entirely through
local property taxes.
Suddenly the likelihood loomed that the state so long irreconcilably
opposed to income and sales taxes might have to change its
off-my-back ways. The mood here has been one of an intensifying and
agonizing search for a solution, and these days, the sweat blotching
shirts seems to come not just from the lack of air conditioning in
parts of the 182-year old State House.
More than those in any other state, New Hampshire's schools have
been financed by local government -- about 90 percent of the
$1-billion-plus education budget, compared with about 50 percent
nationwide. And that local control is deeply ingrained in political
tradition here. So is the hostility to "broad-based" taxes like
income and sales taxes -- to the point that politicians routinely
take the pledge not to introduce any.
The state's independent-mindedness could be said to go back at least
to 1774, when New Hampshire -- even then a tax haven for smugglers
and poachers seeking to avoid paying the crown -- was the first
state to declare itself independent from England. And local control
is up there with liberty as a political ideal, from the
still-thriving town meetings to the 400-member House of
Representatives, the third-largest legislative body in the
English-speaking world.
Against that background, the court ruling, said Donna Sytek, the
Republican speaker of the House, "is so violative of New Hampshire
traditions."
And its implications "are, I believe, unprecedented, certainly in
this century," said Mrs. Sytek, whose $100-a-year
citizen-representatives would normally be done for the session by
now. "We're looking at a billion-dollar problem, and only two ways
to solve it -- an income tax or a statewide property tax," she said.
"It's a choice of Brussels sprouts or lima beans. Well, frankly, I
don't like either."
Neither, it seems, does the New Hampshire populace, who already
complain that their property taxes are among the highest in the
country, and who continue to oppose passage of an income or sales
tax.
And neither does Democratic Gov. Jeanne Shaheen, who took the
no-new-taxes pledge when she was running two years ago, and who
would like to be re-elected this fall when her two-year term is up.
After the court ruling, her administration devised a plan that would
have increased education spending and set a statewide property tax
rate while keeping school funding locally administered and avoiding
redistributing from richer to poorer towns.
The plan seemed, as the Russians say, to satisfy the wolves while
keeping the sheep uneaten; polls showed broad support for it, and
the House of Representatives passed it along with the tens of
millions of dollars it would have required the state to raise from
unspecified other tax sources.
But last week the state Supreme Court issued an advisory opinion
that the governor's plan, known as ABC for Advancing Better
Classrooms, was not constitutional. It hinged on giving money back
to those towns that would have ended up paying more in property
taxes, and the court ruled that such abatements are as unequal as
the current widely divergent local property tax rates.
So lawmakers are now going back to the drawing board, with attention
focused this week on the state Senate and what plan it will come up
with from among nearly two dozen floating around the State House in
the form of bills and proposals.
As they ponder, New Hampshire lawmakers cast a frequent fearful eye
to Vermont, which has been in the throes of heated discord over Act
60, its own scheme for responding to a court ruling about school
funding.
In fact, more than 30 states have faced such challenges of their
local school-financing systems since 1971. The challenges argued
that education is such a fundamental right, access to it and the
bills for it should be essentially equal for all rather than locally
set. The trend lately, experts say, has been for courts to agree
with that argument, and for states to try painfully to comply.
But New Hampshire seems to stand out as more defiant and more intent
on defending its local tradition than any other state. One way to
maintain local independence, one camp here proposes, is to pass a
constitutional amendment that would trump the court ruling and keep
power over school funding in local hands.
"We jealously guard local autonomy," said state Sen. Jim Rubens, a
Republican candidate for governor who is proposing an amendment to
retain the current system of funding while increasing guaranteed
state aid to education.
"We resist intrusion of the central planners who think they can
solve our education problems," Rubens said. "And the issue is bigger
than money; money is second in line, the big issue is control."
In fact, there is a school of thought even more defiant. Paul
Mirski, a Republican lawmaker, argues in his proposed bill that the
Legislature should consider the court's decision unconstitutional,
and therefore void, because it effectively creates a new tax.
And according to New Hampshire's "fabulous Constitution," with its
roots in anti-British rebellion, he said, only the Legislature or
the people, not the court, can create a tax.
"I think the court made a mistake," he said, adding that the
Legislature should say, "We can't comply with this."
At the other end of the political spectrum are the courageous --
some would say quixotic -- "broad-basers," who see the court
decision as a great opportunity to finally introduce the income tax
that they think New Hampshire has long needed. (Virtually no one is
talking about a sales tax, for fear out-of-staters would stop coming
in droves to shop here.)
"I think ultimately people will see that we need to mitigate the
high property taxes with some other more fair tax," said Clifton
Below, a lawmaker proposing an income tax. Because of the ruling, he
said, "a lot more people are asking the questions and having that
debate."
It is not uncommon in New Hampshire, Below noted, for poor people to
spend 10 percent or 20 percent of their income on property taxes
while rich people spend perhaps 1 percent. The state has the highest
property tax burden as a percentage of personal income in the
country, he said -- 6.6 percent -- and the court's push toward a
broad-based tax should be seen as a step forward, not back.
"But we have to get over that conceptual hump," he said.
There are also those proposing a uniform statewide property tax,
like freshman Rep. Frank Sapareto, a professional tax and financial
planner from the high-property-tax town of Derry.
"It takes someone seriously suicidal like me" to make such a
proposal, he said, but it is simply financially sensible and just.
"What's going to happen?" he asked. "I'll get fired and go back to
making money?"
Gov. Shaheen allowed that the school ruling, known in verbal
shorthand as "Claremont" for the town that brought suit, is perhaps
the greatest challenge of her governorship. Lawmakers say that they
cannot remember such knotty work since trying to balance the budget
during the recession.
"The court has put us in a box," said Republican legislator Doug
Teschner.
Added his colleague, Jeb Bradley: "It's the devil and the deep blue
sea is what it is."
Copyright 1998 The New York Times Company
-----------------------------------------------------------------